How to Calculate Mortgage Interest for the Real Estate Investor

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In most new real estate mortgage loans, there is a HUD-1 item for the Buyer to prepay the lender for the interest on the loan from the closing date to the end of the month of closing. This is because interest is paid in arrears, and the first payment usually falls on the first day of the month following the month of closing.

  • A closing on June 15th would require interest prepaid for the period from June 16 to July 1st.
  • The first payment would be due on August 1st, with interest in arrears for the month of July.

As an example, let's us a mortgage amount of $272,000 with an interest rate of 7.0%, and the dates above.

  • $272,000 X .07 = $19,040 in annual interest
  • $19040 / 365 calendar days = $52.16/day in interest
  • $52.16 X 15 days in June = $782.40 in interest to prepay
  • The August 1st payment would include interest in arrears for July

Let's Look at Mortgages & Lending

There are mortgage payment and interest calculators all over the Web now.  There are smart phone apps that do it as well.  Let's look at some information points about mortgages and lending with links for more research.

How Fixed Rate Loans Work

Each month's payment is equal to the interest rate times the principal, plus a small percentage of the principal itself. Since a bit of the principal is paid off each month, that makes the interest payment on the remaining principal a little less too. As a result, more of your monthly payment goes toward the principal each month. Therefore, at the beginning of the loan, most of the payment goes towards interest while most of it goes towards principal at the end of the loan.

15-year vs 30-year Mortgages

While there are several types of mortgages available for home buyers, most Americans think of financing their home purchase in terms of the archetypal 30-year fixed mortgage. When presented with another option, such as the 15-year fixed mortgage, the typical home buyer will view it as the more expensive option. But what most of these American home buyers don't know is that in the long-run, a 15-year fixed mortgage may be more likely to meet their financial goals.

The ARM, Adjustable Rate Mortgage

Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

Pros and Cons of Adjustable Rate Mortgages

Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

The Blanket Real Estate Mortgage

Buyers, particularly in the commercial real estate markets, use blanket mortgages for a number of reasons. Lenders make money making loans.  If the numbers work and they get enough security, commercial lenders will originate blanket mortgages used in commercial property investments.  Perhaps your next investment would be better served using a blanket mortgage.

A reverse mortgage can provide money when you need it, but do your homework before applying for a reverse mortgage. If your income from retirement funds, savings and Social Security benefits don't cover your expenses, or you'd like the financial freedom to enjoy your retirement years a bit more, you can use the equity in your home to apply for a reverse mortgage.

The mortgage market took a big hit in the crisis that began in 2006.  However, by around 2015, lenders and the agencies that guarantee home loans were coming out of their overly-tight stance and money was flowing better.